Bankruptcy Procedures in Thailand

After the Asian Financial Crisis, Thailand reformed its Bankruptcy Law to follow the model of the US Bankruptcy Law of 1998. The new Bankruptcy Act provided restructuring proceedings which require judges with special expertise. Hence, the Establishment of the Bankruptcy Court and the establishment of the Procedure for Bankruptcy Cases Act which took effect in 1999. Today the Central Bankruptcy Court has jurisdiction over all bankruptcy cases, civil cases related to bankruptcy cases as well as criminal cases related to bankruptcy cases. Even though the law provides that Regional Bankruptcy Courts may be established, until today, there is only the Central Bankruptcy Court which has jurisdiction over cases related to bankruptcy. Therefore, civil courts in other provinces may transfer a case to the Central Bankruptcy Court if the case is related to bankruptcy.

The following laws might be particularly relevant and apply in cases related to bankruptcy:

The Bankruptcy Act in its amended version

The Act for the Establishment and Procedure for Bankruptcy Courts in its amended version

Ministerial Rules and Regulations on Bankruptcy Cases

The Civil Procedure Code in its amended version.

Bankruptcy Procedures take place in the bankruptcy Court of First Instance and in the Appeal Instance. The Court of First Instance is the Central Bankruptcy Court while the appeal body is the Supreme Court. An appeal against a judgement or order of the Central Bankruptcy Court can be submitted to the Central Bankruptcy Court within one month after pronouncement whereupon the appeal will be transferred to the Supreme Court. The Central Bankruptcy Court shall proceed and pronounce a decision in an expeditious manner. If a party is in default of appearing in court, special rules apply to the disadvantage of the absent party.

Bankruptcy is defined as an involuntary state which allows for the distribution of the assets of a debtor among his creditors according to statutory procedure. A creditor can start bankruptcy proceedings against a debtor who is regarded insolvent and owes more than 2 million Baht in the case of a company or more than 1 million Baht in the case of an individual. The law contains a list of cases when a debtor is regarded insolvent, for example if the debtor commits certain acts to avoid paying his debts or if he informs any of his creditors that he cannot pay his debts.

In bankruptcy the claims of secured creditors will be treated with priority in the following way: proceeds from the sale of securities will be treated separately and given to the secured creditors first.

Unsecured claims and expenses are classified into categories and will be satisfied in a certain order as stipulated by the law. If the bankruptcy estate is not sufficient for all claims of all creditors within a category of claims, the claims will be satisfied “pari passu” (equally) within each category.

However, one way for the insolvent debtor to avoid being adjudicated as bankrupt is composition, a kind of agreement between debtor and his creditors sanctioned by a court order. After being declared bankrupt a bankrupt person may be discharged from bankruptcy if he fulfils certain conditions such as paying a certain quota of his debts and not being dishonest.

In the case that the debtor is a juristic person special rules apply. In such a case the liquidator of the juristic person can submit a bankruptcy motion apart from the creditors.

Another way for the insolvent debtor to avoid bankruptcy is restructuring. Restructuring is a proceeding under the court’s supervision which prevents the creditors from immediately distributing the debtor’s assets which normally lead to the liquidation of the debtor in the case that the debtor is a company. The Restructuring or Reorganization allows the company in financial distress to continue business operations so that the creditors might profit from the continued operations of the company, ending up recovering more than in the case of liquidation.

According to Chapter 3/1 of the Bankruptcy Act the Restructuring takes place in the following way:

The debtor, creditor(s) (in the case where owed more than 10 million Baht) or a government authority file(s) a petition for restructuring.

If the court approves the application the debtor is temporarily protected against claims by the creditors. The court will only approve the application if it appears that the debtor’s business can be successfully reorganized.

The creditors propose a so-called Plan Preparer, a person who drafts a Rehabilitation Plan.

The court approves the Plan Preparer and appoints him.

After the appointment of the Plan Preparer the creditors have 1 month to submit their claims.

The Plan Preparer drafts the Rehabilitation Plan within three months with two possible extensions of one month each.

The plan is sent to the creditors and other related parties. The receiver calls a meeting of the creditors, and the creditors discuss the plan and propose amendments. A party can submit proposed revisions to the plan at least three days in advance of the meeting.

The creditors approve the Rehabilitation Plan by way of a special resolution reached in a prescribed procedure. For this purpose, the creditors will be classified as follows:

Secured creditors with minimum secured debt of 15% of total debts

Other secured creditors

Unsecured creditors

Preferred creditors

The above classes of creditors are relevant for the passing of a special resolution for the approval on the Rehabilitation Plan, plan revision, removal of a Plan Administrator and appointment of the creditors’ committee for plan implementation. The creation of classes and new majorities for passing special resolutions is one of the major changes of the bankruptcy law reform of 1997-1999.

Furthermore, there are certain creditors who are deemed to have accepted the plan such as:

Creditors whose claims are paid in full within 15 days

Creditors who will be paid under existing contracts

Creditors according to Sec. 130 bis

The Rehabilitation Plan is submitted to the court.

The court approves the Rehabilitation Plan.

The time frame for implementation of an approved and binding Rehabilitation Plan is 5 years. A one-year extension is possible but only twice.

The court finally decides that the Rehabilitation Plan was successful. The business is then rehabilitated. Otherwise bankruptcy proceedings will begin.

The court has the power to annul juristic acts which are prejudicial to creditors, upon petition of the Plan Preparer or a Receiver. The Receiver is a government official who has an administrative and supervisory role before and during the implementation of the Rehabilitation Plan and in certain cases also fulfils the function of the Plan Preparer or Plan Administrator.

The plan must contain the following items:

Reasons why the debtor should be restructured

Assets, liabilities, obligations

General principles and methods applying to the restructuring

Rules regarding secured creditors and guarantors

Liquidity issues during the implementation of the Rehabilitation Plan

Measures regarding assignment of claims or assumption of debt

Name, qualification, letter of consent and compensation of the Plan Administrator

Conditions for appointment and release of Plan Administrator

Time frame for implementation of the Rehabilitation Plan not exceeding five years

Measures regarding certain assets and contractual rights of the debtor

The creditors have the right to appoint a committee of creditors to monitor the implementation of the plan according to the rules of the bankruptcy law.